Which are the best credit cards?

Finding the best credit card is mostly a matter of comparison shopping. Before you accept a credit card offer, be sure to understand the card’s credit terms. For instance, what is the annual percentage rate? Is there a free period? How much is the annual fee? Then compare costs and features of other cards to see if you can get a better deal.

Tip: Which card is best for you may depend on how you plan to use it. If you plan to pay bills in full each month, the size of the annual fee or other fees, and not the periodic and annual percentage rate, may be more important. If you expect to use credit cards to pay for purchases over time, the APR and the balance computation method are important terms to consider. In either case, keep in mind that your costs will be affected by whether or not there is a grace period.

The “annual percentage rate,” or APR, is a measure of the cost of credit, expressed as a yearly rate.

The card issuer also must disclose the “periodic rate” applied to your outstanding account balance to figure the finance charge for each billing period.

If the credit card you are considering has a “variable rate” feature, the card issuer must tell you that the rate may vary and how the rate is determined. You also must be told how much and how often your rate may change.

A free period-also called a “grace period”-allows you to avoid the finance charge by paying your current balance in full before the “due date” shown on your statement. Knowing whether a credit card plan gives you a free period is especially important if you plan to pay your account in full each month.

If there is no free period, the card issuer will impose a finance charge from the date you use your credit card or from the date each transaction is posted to your account.

Most credit card issuers charge annual membership or other participation fees. These fees range from $25 to $50 for most cards, and from $75 on up for premium cards. The annual fee for an American Express Platinum Card is $450.

A credit card also may involve other types of costs. For example, some card issuers charge a fee when you use the card to obtain a cash advance, when you fail to make a payment on time, or when you go over your credit limit. Some charge a flat monthly fee whether or not you use the card.

What is the difference between the average daily balance, adjusted balance and previous balance?

Average Daily Balance (including or excluding new purchases). The average daily balance method gives you credit for your payment from the day the card issuer receives it. To compute the balance due, the card issuer totals the beginning balance for each day in the billing period and deducts any payments credited to your account that day. New purchases may or may not be added to the balance, depending on the plan, but cash advances typically are added. The resulting daily balances are added up for the billing cycle and the total is then divided by the number of days in the billing period to arrive at the “average daily balance.” This is the most common method used by credit card issuers.

Adjusted Balance. This balance is computed by subtracting the payments you made and any credits you received during the present billing period from the balance you owed at the end of the previous billing period. New purchases that you made during the billing period are not included. Under the adjusted balance method, you have until the end of the billing cycle to pay part of your balance and you avoid the interest charges on that portion. Some creditors exclude prior, unpaid finance charges from the previous balance. The adjusted balance method usually is the most advantageous to card users.

Previous Balance. As the name suggests, this balance is simply the amount you owed at the end of the previous billing period. Payments, credits, or new purchases made during the current billing period are not taken into account. Some creditors also exclude unpaid finance charges in computing this balance.

How can I get the most benefit from my credit cards?

Here are some suggestions for the use of credit cards:

  1. Pay bills promptly to keep finance charges as low as possible.

Tip: Keep copies of sales slips and promptly compare charges when your bills arrive

  1. Keep a list of your credit card account numbers and the telephone numbers of each card issuer in a safe place in case your cards are lost or stolen.
  2. Protect your credit cards and account numbers to prevent unauthorized use.

Tip: Draw a line through blank spaces above the total when you sign receipts. Rip up or retain carbons.

  1. Deal only with reliable firms. In doubt? Check with your local consumer protection agency or the Better Business Bureau (BBB) nearest to where the business is located. Study the advertising offer carefully. Ask the company about its warranty, refund and exchange policies.

Tip: Pay by money order, check, charge or credit card so you have a record of your purchase.

  1. Never send cash. Keep the ad you responded to and a copy of the order form. If there is no order form, make your own notes with the company’s name, address, phone number, date, amount, the item you purchased, and any delivery date that may have been promised.
  2. Never give out your credit, debit, charge card or bank account numbers unless you’ve checked out the company or have done business with it before.

How can I check my credit report?

Mistakes on credit reports occur frequently. They might be caused by stolen or unauthorized use of credit cards, other individuals with the same name, or a creditor reporting something in the wrong way. Thus, you should check your credit report periodically.

To check your report, call or write any of the three major credit bureaus:

Equifax
Information Service Center
P.O. Box 740241
Atlanta, GA 30374-0241
1-800-685-1111

TrueCredit
Trans Union Corporation
Consumer Disclosure Center
P.O. Box 390
Springfield, PA 19064-0390
1-877-322-8228

Experian
1-888-397-3742

When writing, send your full name, including middle initial and generation (e.g., Jr., Sr., II or III); any maiden name; your current address; addresses for the past five years; Social Security number; and date of birth. Sign your request. In the case of Equifax, you must enclose proof of your current address (e.g., a photocopy of your driver’s license.)

According to federal law, you are entitled to a free report within 60 days of being denied credit, employment, insurance, or rental housing. Ask which credit bureau supplied the information. You also are entitled to a free report once a year if you are unemployed, on welfare, or believe there are inaccuracies in your report as a result of fraud.

How can I build a credit history so that I can establish credit?

It may take time to establish your first credit account if you have no reported credit history. This problem affects mainly (1) young people, (2) older people who have never used credit, and (3) divorced or widowed women who shared credit accounts reported only in the husband’s name.

Here are some steps you can take:

  • Check with a credit bureau to find out what is in your credit report.

Tip: If you have had credit before under a different name or in a different location and it is not reported in your file, ask the credit bureau to include it. Although credit bureaus are not required to add new accounts to your file, many will do so for a fee.

Tip: If you currently share a credit account with your spouse, ask the creditor to report it under both names

  • When contacting your creditor or credit bureau, do so in writing and include relevant information, such as account numbers, to speed the process. As with all important business communications, keep a copy of what you send.
  • Build a credit history by applying for credit with a local business, such as a department store, or borrow a small amount from your credit union or the bank where you have checking and savings accounts. A local bank or department store may approve your credit application even if you do not meet the standards of larger creditors.
  • If you are rejected for credit, find out why. There may be reasons other than lack of credit history. Your income may not meet the creditor’s minimum requirement or you may not have worked at your current job long enough.

Tip: Wait at least six months before making each new application. Credit bureaus record each inquiry about you. Some creditors may deny your application based on your having too many credit inquiries.

Tip: If you still cannot get credit, ask someone with an established credit history to act as your co-signer. Then, once you have repaid the debt, try again to get credit on your own. Alternatively, you may wish to consider a secured credit card.

How will a divorce or separation affect my credit?

Here are some tips for handling the credit aspects of divorce, both in the planning stages and afterwards.

Cancel All Joint Accounts First, it is important to cancel all joint accounts immediately once you know you are going to obtain a divorce. Creditors have the right to seek payment from either party on a joint credit card or other credit account, no matter which party actually incurred the bill. If you allow your name to remain on joint accounts with your ex-spouse, you are also responsible for the bills.

Some credit contracts require that you immediately pay the outstanding balance in full if you close an account. If so, try to get the creditor to have the balance transferred to separate accounts.

How can I tell whether I have too much debt?

If you answer yes to any one of the following questions, you should take action:

  • Have you run several credit cards up to the limit?
  • Do you frequently make only the minimum monthly payments?
  • Do you apply for almost any credit card you are offered–without checking out the terms?
  • Have you used the cash advance feature from one card to pay the minimum payment on another?
  • Do you use cash advances (or a credit card) for living expenses such as food, rent, or utilities?
  • Are you unable to say what your total debt is?
  • Are you unable to say how long it would take you to pay off all your current debts (excluding mortgages and cars) at the rate you have been paying?

If you find several of these statements describe your credit habits, it may be that you need to take steps to manage your debt before bill collectors start calling and your credit history is endangered.

What steps should I take if I get into financial trouble?

Here are some specific steps you can take if you are in financial trouble.

  1. Review each debt that creditors claim you owe to make certain you really owe it, and that the amount is correct.
  2. Contact your creditors to let them know you’re having difficulty making your payments. Tell them why you’re having trouble. Try to work out an acceptable payment schedule with your creditors.

Tip: Do not wait until your account is turned over to a debt collector. At that point, the creditor has given up on you. As soon as you find that you cannot make your payments, contact your creditors to try to work out a reduced-payment plan.

  1. Budget your expenses. Create a spending plan that allows you to reduce your debts. Itemize your necessary expenses (such as housing and health care) and optional expenses (such as entertainment and vacation travel). Stick to the plan.
  2. Try to reduce your expenses. Cut out any unnecessary spending such as eating out and expensive entertainment. Consider taking public transportation rather than owning a car. Clip coupons, purchase generic products at the supermarket, and avoid impulse purchases. Above all, stop incurring new debt. Consider substituting a debit card for your credit cards.
  3. Use your savings and other assets to pay down debts. Withdrawing savings from low-interest accounts to settle high-rate loans usually makes sense.

Tip: Selling off a second car not only provides cash but also reduces insurance and other maintenance expenses.

Tip: If you are unable to make satisfactory arrangements with your creditors, there are organizations to help you with your financial situation. For instance, Consumer Credit Counseling Service (CCCS) agencies, which are local, non profit organizations affiliated with the National Foundation for Consumer Credit (NFCC), provide education and counseling to families and individuals.

To contact a CCCS office for confidential help, look in your telephone directory white pages, or call 1 (888) 656-CCCS, 24 hours a day, for an office near you. Or write to the National Foundation for Consumer Credit Counseling, 801 Roeder Road, Suite 900, Silver Spring, MD 20910. 301-589-5600

Tip: Some people with debt problems have found that Debtors Anonymous, General Service Office, PO Box 920888, Needham, MA 02492-0009, 1-800-421-2383 has provided helpful service.

Personal bankruptcy, a serious step, should be considered only if other means have been exhausted, and only if it is the best way to deal with financial problems. A skilled and trusted bankruptcy lawyer should be consulted.